Machinery/Industrial Goods

Caterpillar to cut 10,000 jobs by end 2018

BobTita

Caterpillar Inc. said it would slash thousands of jobs and cut manufacturing space by 10%, as it expects weakening demand from resource and construction companies will continue to drive down sales of its heavy equipment through at least next year.

The Peoria, Ill.-based company said the job cuts could exceed 10,000 people through 2018, including 4,000 to 5,000 salaried and management positions to be eliminated by the end of next year. It aims to reduce annual costs by roughly $1.5 billion.

Caterpillar said it now expects 2015 revenue to be about $48 billion--$1 billion lower than its previous projection--which would mark a decline of about 27% from a peak of nearly $66 billion in 2012. And it said 2016 revenue likely would fall another 5% from 2015, which would be the first time in Caterpillar's 90-year history that sales declined for four consecutive years.

The announcement, which sent Caterpillar shares tumbling, underscores the depth of the downturn in the mining and energy sectors after years of rocketing demand for its excavators, mining trucks, wheel loaders and industrial engines. Caterpillar already had cut its global workforce, before Thursday's announcement, by more than 31,000 since mid-2012, and it had closed or announced plans to close or consolidate more than 20 facilities, affecting 8 million square feet of manufacturing space.

The company had 111,247 employees at the end of June.

Previous slumps in global mining have lasted for years, making it difficult for Caterpillar to hold on to plants and workers in anticipation of an upturn. And the latest restructuring makes clear that Caterpillar expects the current pain to persist.

"We are facing a convergence of challenging marketplace conditions in key regions and industry sectors--namely in mining and energy," Chief Executive Doug Oberhelman said. "While we've already made substantial adjustments as these market conditions have emerged, we are taking even more decisive actions now."

He said the cuts would "better position Caterpillar to deliver solid results when demand improves."

Caterpillar aggressively expanded during a commodities and construction boom that followed the 2008 global economic slump, anticipating sustained demand for equipment from China and other overseas markets. To free up production capacity overseas, it moved operations from Japan and elsewhere to the U.S., opening new plants in Texas, Georgia and North Carolina. The company anticipated it would need production capacity for equipment sales that would reach about $100 billion annually.

It also acquired more factories and workers when it purchased Milwaukee-based mining equipment maker Bucyrus International in 2010. The $8 billion purchase, the largest in Caterpillar's history, was intended to help it benefit from surging demand for iron ore, copper, coal and other mined commodities.

But commodity demand has collapsed amid slower economic growth in China, and lower prices for oil also have squeezed demand from Canada's oil sands region for Caterpillar's giant mining trucks.

Throughout the slump, Caterpillar has remained profitable, with earnings of $3.7 billion last year, down from $5.7 billion in 2012. And even as it has shed workers to cut costs, it has spent $8.2 billion on share repurchases over the past three years to support its stock.

Still, its share price has fallen sharply. They were trading off more than 6% late Thursday morning, leaving them down about 41% from their high in 2014.

Caterpillar on Thursday didn't update its profit outlook for this year, saying it would do so when it reports third-quarter results late next month.

The company said its restructuring effort is expected to lead to pretax costs of roughly $2 billion but that it expects to see half of the projected $1.5 billion in cost savings from the restructuring next year. It said the restructuring could affect more than 20 facilities, covering more than 10% of its manufacturing square footage.

Caterpillar said it isn't abandoning plans for a new headquarters building in downtown Peoria, but that there currently is no schedule to begin construction.

"We do remain committed to Peoria and Illinois, and our vision for a new downtown headquarters, [but] now is not the time to begin work, and I can't say when," a spokeswoman said.

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